The US Federal Reserve system might best be compared with Winston Churchill’s description of Russia as “a riddle wrapped in a mystery inside an enigma”. Perhaps that does not do the Fed justice, for the Fed is even more mysterious a monster than old Russia. But justice is not what the Fed is all about. Far from it.

Last weekend, the mystery, to my mind, deepened.

Roars of applause have greeted a vote to investigate the Fed, which passed Congress last Friday. The White House joined the acclaim. But the Bill was part of an Appropriations Bill and not the singular one passed by Congress with bi-partisan support weeks ago. Meanwhile the Senate has its own Bill also, part of Appropriation, and the two houses will presumably nut something out. What will be nutted out might well be pretty much anything.

Critics of the Fed are hailing as a massive victory the Bill, to audit the all-powerful and super secret club for the wealthiest people on earth, which was included as part of the larger financial reform package proposed by representatives Alan Grayson and Ron Paul for investigation. The Fed, which has never had an audit in its history, desperately needs some transparency, Grayson said.

He added he has further discovered the Federal Reserve has conducted secret bailouts that range in the hundreds of billions of dollars since 2008 and the Bill will grant authority to the non-partisan General Accountability Office to conduct the audit. “Exposing how the Federal Reserve operates is a crucial component to any meaningful reform. We need to find out what they’ve done and then we can figure out how to respond,” he said.

We surely do and by we, I mean the citizens of the world, for where the Fed treads the central banks of the West follow, often blind to cause and consequence. For the Fed is the trunk of a tree and the world central banks are but arms of it.

There have been many moves to investigate the Fed but history shows that the Fed has been far ahead of those who would curb its powers. The wealthiest and most powerful people on earth don’t take to strangers, mere elected officials, shouldering in and asking them what they have been doing with the world’s money.

The entire Wall Street establishment has opposed passage of this Bill yet the White House, which has carried water for those interests, expressed joy at the proposed investigation which — in the new context — makes me deeply suspicious. Can Summers, Geithner and Bernanke really be delighted at this development? Any real investigation, I suggest, would uncover the greatest financial scandals imaginable — which is why the tumult is so loud. If anything, the mystery has deepened.

Unhappily, years of study of the Fed show that it has so effectively and cleverly wrapped itself in enigma. Devout attention from lawmakers, in the face of a lobbying effort launched by the “too big to fail” Zombie banks that are part of the Fed cartel, makes it almost inconceivable that “we the people” will prevail. If history is our guide the Fed will emerge with more power, or reduce the powers of others to achieve the same. The definitive work on the Fed, “The Creature from Jekyll Island” shows how effortlessly the Fed has crushed opponents and populist opposition since its inception in 1910 and its creation in 1913.

The depression of the 1890s has much in common with all serious downturns that are not just products of the pride of over confidence leading to a fall. As the ground-breaking work of Australia’s pre-eminent economist Professor Steven Keen is beginning to drive home the great depressions of the 1890s and 1930s variety — and the one we are on course for today — are rare birds for good reason.

For most downturns are just that, dislocations that require sharp management and guidance and rethinking. Occasionally, however, we have a bubble built on a bubble built, in turn, on another until the entire economy is wrapped, not in enigma, but in the thin membrane of soap and water that can produce and will produce, the mother of all bubbles.

Now we are on the cusp of a super-nova bubble of the kind we see only when vast dislocations are papered over with printing presses and the production of money to sustain an industry of “financial services” that, as Paul Volcker said last week, has made one contribution of worth in 30 years — the introduction of  ATMs. Thanks boys. But the financial “industry”, that produces nothing but new bubbles must be serviced itself. Daily. With dollars printed by the US government.

Which is what happens when we do not curb the appetites of the financial elite, when the political system becomes corrupted by that elite, to sustain and nurture the super rich and our entire society becomes their plaything. Thus, as was pointed out during Keen’s masterly performance on US TV on Friday, $US12 trillion ($A13 trillion) of the almost $US20 trillion that has been spent rescuing Zombie banks and the insane pack of hyenas now loose on the world’s middle-class would have paid off all of America’s troubled loans, all of the nation’s credit cards, and they still would have a few trill in spare change.

Fear of default stalks nation after nation. Keen’s position is that we don’t know where the next crisis will come from, that the financial system is like cooking popcorn and it’s impossible to gauge which corn will pop next.

But as anyone who has cooked popcorn knows, once the heat is on all the corn will eventually pop. So while we might not have a domino-style run of defaults the result will be little different.

Meanwhile, nations, those with stronger currencies, are reverting to or maintaining currency controls in the hope they will be spared another meltdown.

China continues to grow — rapidly. The Chinese are savers, not borrowers, and they are starting from so low a disposable income level that they are considerably more resilient to economic downturns. The economic empire it is creating represents a new Asian co-prosperity sphere that stretches around the globe.

China is controlling capital flows and refusing to let the yuan rise. This will continue to suck the manufacturing power out of the West. It is significant that male youth unemployment in the West is falling at an alarming rate. Spain, the seventh biggest world economy is facing 45% unemployment rates for males under 25. In the US, the latest figures show a plunge in young male employment. In the past these people would find work in manufacturing. Now service industries are all that’s out there. Young men’s jobs have been exported. They are not ever coming home. These are the wounds of war.

In India growth is abundant, sapping service jobs as well as manufacturing. Young Western males are excluded again. India’s cheap goods and services also are overwhelming Western competition and eating at the foundations of Western economies.

The move to capital controls is prompted by cheap, easy money that can be borrowed from the US as the dollar, while likely to strengthen marginally as a knee-jerk reaction to broad currency fears, will inevitably continue its march to pauperism. More stringent controls will spread as financial “beggar thy neighbour” policies are adopted. Governments have no choice, as failure to impose controls and allowing currencies to appreciate on foreign exchanges can destroy their economies.

The days of “hot money” sloshing around the world, wreaking havoc at the whim of those young Westerners who do have jobs, those in the financial service industries, the “carry-trade” will be met by capital controls as inflationary fears are replaced by the even more devastating effects of unfettered currency movements.

Russia on Wednesday announced measures that would prevent or stem currency speculation and appreciation. The idea is to make it hard enough for the hot-money boys to reconsider and to look elsewhere to wreak their havoc.

Indonesia, Taiwan, Brazil and Kazakhstan also have joined the currency control club. They might not be using their powers but the very fact they have felt obliged to adopt such measures will heighten the barriers. Nations with currencies that can be defended will do so.

Where, one wonders, does that leave the UK?

Among the PIIGs, I suggest. We have BRICs and PIIGS.

Brazil, Russia, India and China are the BRICS and Portugal, India, Ireland, Greece and Spain the PIIGS. The BRICS are weighted while the PIGGS might fly.

The pound is being pounded and it too might join the PIIGs.

Which brings us back to the rather amusing moves by the credit rating agencies to downgrade the status of the PIIGS currencies, or most of them late last week. A yellow card was waved in the face of “Great Britain”.

Here we see rating agencies that gave AAA prime grade to US toxic home loans just three years ago but are now stomping on the status of entire nations, making it harder for them to raise money.

Perhaps they have learnt their lessons and are now applying more strict standards but the fact that these agencies can pretend to have credibility, given their dishonourable performance in the past, seems to mock any concept of propriety. European nations that accepted the AAA status of the US banks selling this waste now flaunt their power at entire nations and drag the living standards of people in those countries to the brink. Riots will be the order of the day.

But the financial crisis would not have spread to Europe were it not for those gilt (or is it guilt)-edged AAA ratings handed out to the US banks as they flogged their toxic waste. Even Germany is facing massive writedowns due to the failure of the credit agencies to wave that yellow flag and now they have the audacity to punish nations they burnt with their phony credit status rating.